BackIt’s time to add value to services
It’s time to add value to services
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The wealth management industry in India has truly gone through a paradigm shift in the last one year or so. Till the shift came in, common practices of entry load structure and exit load compulsions for mutual funds, charge structures for unit-linked insurance plans (Ulips) were borne by the customer. A portion of these load structures and charges were given as commission to banks, distributors and financial institutions. The customer was being made to pay a charge that should have been ideally given by the product manufacturer to his partner.
Positive changes
In recent times, with the objective of ensuring full transparency, both the Securities and Exchange Board of India (Sebi) and Insurance Regulatory and Development Authority (Irda) have forced the hands of the asset management and insurance companies, respectively, to overhaul product pricing, and in many cases, the products themselves.
The first change was initiated in August 2009 by Sebi, abolishing the entry load structure for all equity mutual funds. A more recent change was pushed through by Irda in September 2010, bringing in a new charge structure for Ulips. Both the regulators have ensured that changes are to the benefit of the end user. This is clearly a welcome change. As a distributor of third-party investment and insurance products, I know that the new products to be launched will be even more customer-friendly.
As for the existing ones, customers are already benefiting from the simplicity of the load structure. Another key benefit of these new initiatives will be from the client’s point of view. Clients will now be more aware of the structure of these products and the specific benefits that would accrue to them.
The distributor’s role here is also huge and I know for certain that the time and effort spent on educating the client on the product benefits is a lot more now. For instance, product illustrations adopted by insurance companies are becoming far more comprehensive.
The way ahead for wealth management industry
Business models have evolved and shall continue to evolve over time. Often changes, of the kind now seen, act as triggers. In the case of the wealth management industry, most banks are now adopting a fee-based model charged on advisory instead of pure product-driven distribution strategies. From the client’s perspective, they will pay a fee to the distributor only if they see value in the overall offer that they buy into.
Overall planning: This will change the way products are sold to clients in the future. The role for a pure “transacting intermediary" will shrink. The intermediaries, in order to command attention from clients, will instead have to move towards an overall wealth management approach that involves financial planning and client asset allocation leading up to need-based sale of suitable investment or insurance products. Effective education of product benefits and matching it to the requirements of the client will be followed as a standard practice.
Customizing products and value addition: Banks and wealth management firms are now evolving the manner in which they sell an investment proposition to their clients. Providing customized and comprehensive investment solutions, focusing on technology and increasing convenience and analytical support will be the de rigueur composition of all banks and wealth management firms. They will now have to increasingly ensure that clients recognize the value-add in their services in order to willingly obtain fee from them.
New role of relationship manager: At the core of any wealth management proposition for a bank is the relationship manager. In the future, the role of an relationship manager will change; new regulations acting as the trigger here too. In short, banks will have to evolve into becoming a one-stop total solutions provider to their clients.
Pankaj Narain is director and head (private clients, banking and investments, India), Deutsche Bank AG.
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